How to Read Financial News

The amount of financial news published these days is staggering. The volume of news and analysis could drop 90% and it would still be completely overwhelming.

How do you make use of it all? As a financial writer who spends an embarrassing amount of time sifting through news, here are a few things I've come to terms with.

Read things you know you're going to disagree withThere is so much media content today that you can always find someone who agrees with you. Bullish on Apple (NASDAQ: AAPL) ? Thousands of writers are, too. Think the government is a giant conspiracy? There are countless blogs for that. Think the global recession was caused by celestial bodies falling out of alignment? I'm not kidding, folks-- there are blogs for that (and I'm doing you a favor by not linking to them).

The huge diversity of opinions makes readers vulnerable to something called confirmation bias. It's when you start with an answer, and then dig for information that backs it up. It's really dangerous because once you find someone else who agrees with you, you become more convinced that you are right -- even though you can find someone who agrees with you about literally anything.

In investing, Berkshire Hathaway (NYSE: BRK-B) Vice Chairman Charlie Munger advocates the intellectual approach of Charles Darwin, who regularly tried to disprove his own theories. I'd recommend doing the same with financial news. You will probably learn the most from people you disagree with. They cause you to challenge your existing beliefs, many of which may be driven more by emotion than by fact.

You don't have to get crazy with this. But whenever you're convinced of a trend or a theory, go out of your way to read the counterargument. At worst, you continue to disagree with it. At best -- and quite frequently -- you gain a perspective you'd never thought of before.

Mr. Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces -- with Alaska reverting to Russian control ...

California will form the nucleus of what he calls "The Californian Republic," and will be part of China or under Chinese influence. Texas will be the heart of "The Texas Republic," a cluster of states that will go to Mexico or fall under Mexican influence. Washington, D.C., and New York will be part of an "Atlantic America" that may join the European Union.

The value in these prediction-type articles -- which make up a big portion of financial news -- comes months or years after they are published, when you can see how hopelessly inaccurate they were.

Or take this headline, from August 2011: "Dow falls 512 in steepest decline since '08 crisis."

That wasn't a bad prediction, of course. It's what actually happened, and it felt like a big deal at the time. But 14 months later, how many people still care about it? No one. The Dow Jones (DJINDICES: ^DJI) has regained all of its losses and then some. What seemed monumental then is irrelevant now. You only gain that perspective in hindsight.

These are both extreme examples. But read enough old news, and you quickly realize two things: The majority of predictions never come close to being true, and most of what we think is important news is trivial in the long run. Once you become convinced of this, you react differently to today's newspaper.

Read a mix of professional and amateur contentProfessional journalists -- those at TheWall Street Journal, New York Times,Financial Times, and so on -- will always be more factually accurate, have better access to reputable sources, and can dig deeper into a subject than most amateur bloggers.

But they also have deadlines, quotas, and bosses with quarterly earnings to worry about. That makes them susceptible to turning non-news into something meant to sound important. The best examples are journalists ascribing reason to daily market moves. "Dow Falls on Profit-Taking," for instance. No one knows what that means.

On the other hand, amateur bloggers tend to write only when they have something meaningful to say (though there are exceptions). When stumped, they just don't publish anything. Sometimes for days on end. It's no big deal. They only answer to readers, who demand quality and nothing else.

Ideally, you should read a healthy mix of both. Never one or the other.

Don't think every news story is actionableThis might be the most important. There are thousands of news articles published every day. Very, very few of them should ever compel you into action.

Most financial news should, at best, be treated as something that incrementally helps you understand the big picture. If you find yourself tempted to tweak your portfolio after reading news, do your future self a favor and read less of it.

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Glad I could be first to comment. This is a tremendous perspective (though am I succumbing to confirmation bias because I already agreed with this???). Your first point, as Munger often says, "invert everything," bears repeating! Trying to disprove your own views has to be one of the most beneficial practices ever for continual growth and improvement. And thanks also, Morgan, for your clearinghouse list of resources. I'll check them out.

Isn't it interesting that the best sources for financial news are print or online? Not a broadcaster in the bunch -- they're just noise and/or entertainment. (CNBC, Fox Biz, CNN... a pox on them all.) And I agree in reading something you don't agree with. If your thesis can withstand a challenge, it makes your thesis all the more stronger. I wish this "seek out contrary ideas and opinions" approach could be taken by poltical leaders and not just us puny little retail investors.

Good article, as usual. In the "Good Reads" section, you didn't mention John Mauldin and his "Outside the Box" articles ... good thing ! I think he's interesting but it's mostly just advertising his wares. Like you inferred, we must be selective to some point.

Just so you know, I've asked for an e-reader device for Christmas, specifically because I want to read "Everybody Believes It....." Never wanted one until your book.

Your comments, such as those above and many others, are sent to my good friends and family, as they see most news items as actionable. I feel like they open the door to the closet and see the Bogeyman. They scream, and close the door. The next day, they open the door again and scream...but it's only the same Bogeyman that's been there all along.

Can you find how many times the term "Stocks fall on concerns about the European debt crisis" has been used in various media during the past 3 years? Just wondered....

Also, I do read James Surowiecki....and I believe his column is published very week, rather than once per month.

Interesting article ! I was listening to Kyle Bass the other day on Bloomberg and I thought he made a lot of sense. One thing he said is that this may be one of the most difficult times in history to make investment decisions. I tend to agree with that and also his conclusion that the number 1 priority now is preservation of capital. In fact he confirmed my outlook at this time and so far no one has been able to counter that view in my opinion. I could guess where tax rates are going but I am not even going to try at this point. I need a clearer picture to make any decisions. I look at things like a lot of CFOs these days. It all boils down to maximizing return, minimizing risk and minimizing dilution.

"Take 30 minutes every weekend to read The Economist (bonus tip: narrate it in your head with a British accent and you'll feel smarter)."

If you get the digital subscription, you can download the (seven or eight hour) audio version, which is in fact narrated by stuffy-sounding British people. After awhile the voices get stuck in your head and you read everything in their voices.

I'm always a bit late to this forum. I gotta hand it to you, Mr. Housel, your articles are entertaining and I do enjoy the tug. My biggest chuckle though came the moment I arrived at the comment of Tomohawk52 as my inner voice while reading this article was chanting exactly his thoughts.

I might add, the delightful thing about the Brits regarding the Economist is their use of puns. I miss William Buckley's American challenge in that arena.

I agree with not acting on everything you read as becoming true just cuz someone wrote it. It brought to mind when I first started trying to learn about investing.

I had stumbled on an inexpensive newsletter (you get what you pay for, anyone?) that I started using for investment ideas. I (thankfully!) tried to learn something about the recomendations, instead of blindly buying them cuz I felt I didn't know anything yet. As I read, there were VERY few recomendations I felt comfortable with, until, one day, I read his forecast of a financial meltdown that America would not survive. He recomended SELLING ALL U.S. stocks & buying only non-U.S. stocks. I thought about that for a minute, & came to the conclusion that if, indeed, everyone DID follow his advise, America would truely have a meltdown.

I decided that sounded like stupid advise, did not follow it, & dropped his newsletter! True, America had a lot of trouble, but where would a portfolio be NOW with no U. S. stocks???

I looked around & found The Motley Fool & have stayed with you ever since. I've LEARNED so much in the past several years, but it's scary to think of what I not only don't know, but what I don't know that I don't know! I DO know I did not agree with his "timing" the market!

My worst investment came when I jumped at a piece of mail & did not do due dilagence. I didn't have a lot invested, but I lost almost all of it. It taught me, however, not to jump without at least looking for a safe landing. Hence, I have many small positions in many (hopefully!) good businesses, which I intend to stick with for the long run (unless there seems to be a really good reason to rethink my position.

My 1st investment was in Siemens cuz I knew about their switches from work, but I was looking for an investment in hearing aids, as it seemed to me that a lot of kids had different sound devises turned up full-blast! EAR was going nowhere & hadn't for a long time. Looking for others in the field, I found Siemens & decided to go with what I knew (& hearing aids were a small portion of their products).

One of my best was Chipotle at $58.75, which I still have. Most of the time, I have more winners than losers, & most of the losers are down less than the winners are up, so I figure I'm not doing too badly.

Anyway, I try to decide if the company is a good fit for me, & then what I'm willing to risk. I've found that I have a higher tolerance of ups & downs that I originally thought. I don't LIKE when my stocks are down (unless I decide to add another position), but I don't jump into selling without some thought.

I'd like to thank The Motley Fool people for my on-going education. I learn so much when I check out their sites. I have also gotten several others to sign up & LEARN!

"amateur bloggers tend to write only when they have something meaningful to say...they just don't publish anything. Sometimes for days on end."

Sorry 'bout that. But it does give me an excuse to tell one of my favorite stories.

I am middle-aged with the proverbial beer-belly. There is not much I remember from my junior high school days, but this one is key to my current rhetorical behavior. My registration was messed up, and the principal, who was one of those burly marine types with a crew cut who you did not mess with, spent half an hour with the school secretary to fix it. Sitting in his office, I saw a poster that said "make sure your mind is in gear before you open your mouth".

To this day, this is advice I still live by, including my rather one-sided (in the negative sense) run for Congress a few years ago.

Fox Business Channel is probably the best of the mainstream financial media. There is not as much hype and "goom and doom" as on CNBC and MarketWatch. if you looked at those two all the time you would never buy another stock again and keep all your money under the mattress.

The most important thing you can do for yourself is understand the difference between fact and opinion and always search for the truth. There is no shortage of fluff and useless facts in the financial news and it’s your responsibility to filter through the noise and figure out what the markets are saying.

One option he said is that this may be one of the most difficult times in record in order to make investment decisions. I have a tendency to agree with that and furthermore his conclusion that the number 1 priority now was preservation of capital. In fact he confirmed my outlook at this time and so far no one has been able to counter that view in my opinion. -Jason, http://www.primeblog.us